Americans are giddy about stocks again as Dow tops 23,000

With the stock market surging and the Dow Jones trading above 23,000, Americans are bullish on investing.

With the stock market surging and the Dow Jones trading above 23,000, Americans are bullish on investing.

(Richard Drew / AP)

Heather LongWashington Post

When the Dow topped 23,000 for the first time ever Tuesday, Adam Cooper was sitting in class at Howard University grinning. Cooper, a junior, had his Schwab trading app open, watching the market climb and his personal wealth grow.

The U.S. stock market is soaring, as President Donald Trump likes to point out on Twitter. The Dow is up 27 percent in the past year and 250 percent since it bottomed out in March 2009 during the financial crisis. It's now the second longest bull market in U.S. history.

"It is cool again to invest," says Cooper, who bought his first stock at age 18 with money he saved from an Outback Steakhouse job. Today he has about $10,000 in the market, thanks to a combination of investment gains and putting more money in over the years. He's now 25.

On Main Street, it's become fashionable again to talk about stocks. Cooper's wardrobe even pays homage to investing. He ditched his sports team hats in favor of a navy cap with the Bloomberg logo on it, a gift from the company that makes the popular trading and market data terminals. Friends regularly ask him for stock tips.

Cooper, who drives for Lyft in between classes to make extra cash to invest, isn't alone in putting a lot of his money in the market. Fifty-two percent of Americans have at least some money in stocks, according to data released in September from the Federal Reserve. That's the highest percent since the financial crisis, a sign that Americans who felt burned during 2008-09 downturn have finally returned.

Some worry that stock market euphoria is gripping the country. They point out that the Dow topped 23,000 the same week that Wall Street marked the 30th anniversary of the 1987 crash. Black Monday — October 19, 1987 — was the worst day ever for stocks. The Dow shed 22.6 percent, a telling reminder of how quickly wealth can be wiped out.

Those looking for reason to worry don't have to search far. There's a potential war with North Korea and ongoing drama in Washington, D.C. But stepping aside from politics, the market has tended to drop when just about everyone thinks the good times will never end. Some people think we're hitting "peak giddiness" now. Consider these stats:

• 63 percent of Americans believe the stock market will be higher a year from now. The University of Michigan has asked that question every year since 2002. This is the highest level ever recorded by the survey.

• 60 percent of market experts are bullish and only 15 percent are bearish, according to a weekly poll Investors Intelligence does of more thanr 100 independent investment newsletters. Historically, when over 60 percent get bullish, it's been a warning sign.

The P/E ratio, a widely watched gauge of how expensive the market is, has topped 21 for the Dow. That's high by historical standards. The average P/E ratio since World War II is a bit over 18. It was 20 heading into the 1987 crash.

Fed Chair Janet Yellen, who generally tries to avoid commenting on the market, said Sunday that stocks looked "elevated" with prices at "high levels in historical terms." Frankly, it's not just stocks. The Economist's cover earlier this month proclaimed, "The bull market in everything." We're seeing just about every asset class rise lately: Stocks, commodities, land, even Bitcoin. It's usually a sign investors are getting overly hyped and aren't separating out the best investment opportunities from the "meh" ones.

But there's a strong case to be made that we're all spending too much time worrying about the next market drop. The reality is it took only two years for the Dow to regain all of its losses from the 1987 crash. The best thing for most people to do is stay invested, a "buy and hold" mentality.

Staying in stocks has always paid off, even if it was dicey for a while. Stock investors made money over every 15-year period since World War II, according to Howard Silverblatt, a senior analyst at S&P Dow Jones Indices who ran the numbers for every 15-year period from 1945 to 2015. Over many 15-year time spans, investors more than doubled their money.

Fidelity Investments ran a similar analysis. Since 1926, investors with 85 percent in stocks and 15 percent in bonds averaged 9.6 percent a year return. Even more importantly, Fidelity looked at what returns would look like if someone missed the best days when the market shot up the most. If someone invested $10,000 in 1980 and kept it in the market through August 2017, they would have over $615,000. If they missed only the five best market days, their portfolio would fall to just under $400,000.

We all spend so much time worried about market crashes. The bigger problem most people have is they pull their money out at the wrong time and miss out on the gains.

"It's very important for our generation to invest," says Cooper. "It looks like we'll have a lot more debt than past generations. We have to start talking to each other more about how to be smart with money."